Interest rates seen going UP

Moderator

The market is expected to trade cautiously next week as investors keenly await the outcome of the key Federal Reserve meeting early next week. The usual factors oil prices and foreign fund flows would also determine the trend of the market.

The US central bank is meeting next Tuesday to discuss monetary policy and is widely expected to boost rates by a quarter-percentage point to 3%. However, of more interest to investors will be what the bankers hint at in the statement.

So far, the Fed has pledged to raise rates at a measured pace, but there are questions about whether it will indicate a slower pace -- due to recent weak economic news, such as Thursday's slower-than-expected read on first-quarter gross domestic product growth. There is also the possibility that the Fed could change the language to indicate a faster pace of growth, due to inflationary trends.

The trend in the US interest rates are crucial for markets across the globe, including India. Foreign funds mostly from the US have put in huge money in the emerging including Indian markets in the last couple of years, as US interest rates have remained extremely low. However, with recent hikes in the US interest rates, there has been a significant reversal in the foreign fund flows to the emerging markets, including India.

Foreign funds pulled out Rs 501.70 crore in the first four sessions of the week. After making huge purchases in the first three months of the year, FIIs have turned net sellers in April, having already sold shares worth of Rs 654.10 crore so far. Players expect the trend to continue with US interest rates likely to go up further.

Easing oil prices could provide some relief to the sagging market. On Friday, US light crude oil for June delivery settled at $49.72 a barrel on the New York Mercantile Exchange. Oil prices are nearly 15% off its all-time high of $58.28 hit last fortnight. With India importing nearly two-third of its crude oil requirements, any softening in oil price should help the economy.

Meanwhile, financial results for the quarter ended 31 March 2005 would also influence trading in individual stocks. The trend in quarterly results so far has been encouraging. Of the 703 MQ 2005 results available with capitalmarket.com, aggregate net profit of 693 comparable companies has risen 39.40% to Rs 12,979 crore on a 18.10% rise in sales to Rs 113,813 crore.

Companies like Alstom Projects, Goodlass Nerolac, Century Textiles, Union Bank of India, UCO Bank, Ondeo Nalco, Flextronics Software, Maruti Udyog, Dr Reddys Labs, ACC, HDFC, Gujarat Industries Power Co and Canara Bank are some of the key results to be announced in the next week.

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